The profitability of electricity generating firms and policies promoting renewable energy

Using a cross-country firm-level dataset this study empirically analyses how the implemented renewable electricity promotion systems Tradable Green Certificates vs. Feed-in-Tariffs affected the profitability of the electricity production sector in Europe during the 2002-2010 period. In particular, it tests the hypothesis that due to market imperfections, namely because of higher investment risk, higher capital constraints and higher transaction costs, TGC schemes will be associated with excess profits for renewable electricity generating firms. The results somewhat support this hypothesis, showing that electricity generating firms, operating in EU countries that implemented TGC, were more profitable compared to FIT firms. (C) 2013 Elsevier B.V. All rights reserved.